MUMBAI — “If the market of those Indians who could afford luxury goods were a country of its own, it would be equal to the tenth or 15th largest country in the world,” Prithviraj Chavan, chief minister of Maharashtra, said recently.
And every luxury brand is eager to tap into it. While China is driving the growth of the global luxury goods industry, India represents significant potential that remains relatively untapped for a number of reasons. These include restrictions on foreign direct investment, a dearth of luxury malls, high tariffs on imported goods and poor infrastructure.
Still, according to industry estimates, India’s luxury market, including cars and jets, will cross the $30 billion mark by 2015 and become the world’s fifth-largest by 2025. It was worth an estimated $14 billion in December 2010, according to A.T. Kearney, still only 2 percent of the global market.
Laxman Narasimhan, a director at McKinsey, speaking at the conference Luxury: Triggers for Growth last month here, said that 42 percent of the country’s luxury market is concentrated in Mumbai and Delhi, and that the top eight Indian cities account for 60 percent of the households that can afford luxury products. “The thing to understand is that [economic] growth will drive luxury consumption,” he said. “India has 4.5 million wealthy households, which earn more than $14,000 a year and are consumers of luxury products and services.”
The country has a record 55 billionaires and overall there are an estimated 8 to 10 million consumers of luxury goods in India who have an annual income of 400,000 to 500,000 rupees, or $9,000 to $11,000 at current exchange, or above. The number of those who can afford luxury goods is growing by about 15 percent a year, according to KSA Technopak.
The average age of the premium buyer has also come down. “Earlier, 30-plus women made up the premium and designer wear segment. Now, it is the 20-plus age segment that drives growth,” said Pradeep Hirani, owner of premium and luxury fashion stores Kimaya.
Yet luxury brands have struggled with the market’s difficulties. Given the high customs duties, pricing is an important issue in India, with many customers preferring to shop when they travel abroad.
“For those who spend on luxury, pricing isn’t always the key issue but a lot of brands have been fighting to get the pricing right in India,” said Anjali Kasliwal, Group Director at SKNL, the sole franchisee for Alfred Dunhill, which came into India in 2007. “Dunhill is at par with Hong Kong and London and has been seeing substantial growth year-on-year,” she said.
Buying patterns are emerging slowly. For instance, men constitute the largest buying segment, and women still prefer to invest in luxury watches rather than luxury apparel.
The Ermenegildo Zegna Group was one of the first global luxury brands to get FDI approval for mono-brand retail following liberalization by the Indian government, and has been active in India since 2003. The first directly managed store was opened in Mumbai in 2007, followed by openings in Bangalore and New Delhi in mid-2008. It has seen double-digit growth since the beginning.
“Strategically, India is one of the markets with the highest growth potential and we are used to being the front-runners in emerging new markets, as is shown by our 100-year history,” said Ermenegildo Zegna, chief executive officer of Zegna. The Mumbai-based company Zegna South Asia Private Ltd., operational since 2006, has been reorganized as a joint venture between Ermenegildo Zegna Group (51 percent) and Reliance Brands Ltd. (49 percent).
Darshan Mehta, president and ceo of Reliance Brands, which also has joint ventures with Diesel, Paul & Shark, Timberland and Steve Madden, plans significant expansion of Zegna.“We plan to ramp up the operations creating a national footprint to capture the potential of the Indian luxury market,” he said. “Zegna will have more than 10 stores across six to seven cites in the five-year period 2010-2015. At the end of 2015, India could potentially be the largest market in South and Southeast Asia for Ermenegildo Zegna driven by strong growth.”
Sanjay Kapoor, managing director of Genesis Luxury Fashion, the local partner for brands such as Canali and Jimmy Choo and shortly to open a Tumi store in Bangalore, also is plotting aggressive expansion. But in his view, the government needs to relax the FDI rules to allow total foreign ownership of single-brand retailing, which he believes would spur consumption.
“FDI is a great way to bring in investment from overseas,” he said, while cautioning brands that they need to remember to treat India differently and look at a slightly longer term for success.
Many international brands such as Cartier, Kenzo and Prada entered India in 2008. Giorgio Armani SpA entered the Indian market in late 2008 with a 51-49 venture with DLF Ltd., the owner of the Emporio luxury mall. As John Hooks, deputy chairman of Armani, observed in New Delhi last year, the need of the hour is to delve into “new vistas of marketing, and India needs to remove barriers in trade for the luxury market to become more accessible.”
Armando Branchini, executive director of Fondazione Altagamma, a trade body of 74 Italian luxury brands such as Gucci, Bulgari, Fendi and Valentino, agreed, saying India will be a big market for luxury goods “if the government will create conditions for change. This market and economy is overregulated by the government.”
Altagamma recently called on the Indian government to lower and restructure tariffs on imported items and reassess the way countervailing duties are levied. An important need is the total opening of FDI and better infrastructure. “So far, international brands are present only in five-star hotel lobbies, airports and a few shopping malls,” Altagama said.
Fulvia Visconti Ferragamo of Salvatore Ferragamo described the luxury market in India as a “work in progress,” one in which Ferragamo has a lot of faith and interest. “By 2020 we believe that India will be our fifth largest market,” she said. Ferragamo has four stores in India. “It is difficult to find the right locations in India, and many Indians travel abroad and shop outside — these are some of the little problems here. But they are not major problems. We plan to grow,” she said.
Asked what Indian consumers liked best from their offering, she said without hesitation, “Accessories.”
But the growth curve of luxury in India continues to have significant bumps. Mohan Murjani, chairman of the Murjani Group, brought Gucci and Jimmy Choo into India in 2005, but gave them up two years later. One of the reasons for the lack of success was that he paid high rents, and generated sales of less than $500 a square foot in his stores, about half of what his business projections had been.
“Indian consumers are buying a lot of luxury, but they aren’t buying it here. I don’t see luxury taking off for at least another decade,” he said.